Back in 1998, Justin Fox published an article in Fortune asking why the economy was so damn awesome, noting that Alan Greenspan attributed it to a mysterious x-factor:
One explanation for this curious confluence of decreasing inflation and decreasing unemployment is what Blinder, now an economics professor at Princeton, calls the “luck factor”: a set of happy coincidences that have put downward pressure on prices. The measurement of inflation has changed, driving the rate down by about half a percentage point. There have also been sharp drops in health care, computer, and oil prices–and a steady rise in the dollar’s value against foreign currencies. Beyond luck, there’s also the fact that the economic policymakers of the developed world have stayed serious about fighting inflation since the early 1980s. That seriousness has convinced consumers and businesses that inflation will stay low, which in turn has reduced upward pressure on prices. […]
If you look beyond postwar U.S. history, however, you can come up with very different patterns. Economist John Makin of the American Enterprise Institute sees the current expansion as an investment-led, inflation-free “golden age” similar to the U.S. scene in the 1920s and Japan’s in the 1980s. Both those booms ended badly, of course–but they didn’t end in bursts of inflation. James Paulsen, chief investment officer at Norwest Investment Management, looks back even further, to the U.S. in the second half of the 19th century. That was a period of no inflation, revolutionary technological advances, massive global capital flows, and rapid economic growth–and was also characterized by devastating spells of deflation.
I always think it’s a little bit odd that the Federal Reserve’s late-1990s interest rate hikes don’t attract more attention:
People recall that the stock market went way down and then the economy never got as hot as it was in the late-1990s again, so the conventional thing is to say “bubble” and roll our eyes at all those old New Economy articles. But there was this deliberate decision to slow the economy down. And it’s not like having achieved whatever they were trying to achieve, the Fed then managed to flip the growth switch back on post-recession.